‘Brexit’ and International Insolvency Beyond the Realm of Mutual Trust

• DOI: http://doi.org/10.1002/iir.1283
• Published date: 01 December 2017
• Date: 01 December 2017

‘Brexit’and International Insolvency Beyond

the Realm of Mutual Trust

Laura Carballo Piñeiro*

Professor of Private International Law, De Conflictu Legum Group, University of Santiago de Compostela,

A Coruña, Spain

Abstract

The outcome of the referendum held in the UK in June 2016 is of far-reaching and

unpredictable consequences. This article focuses on the particular field of

international insolvency with a view to identifying some of them, all arising out

of the fact that the UK will be leaving the EU area of justice and the strong

cooperation based on mutual trust between member states. This will make UK–

EU insolvency cases clearly less efficient and effective. The consequences of Brexit

could be mitigated by the already existing coordination among the international

instruments dealing with these matters, in particular the European Insolvency

Regulation and the UNCITRAL Model Law on Cross-Border Insolvency. How-

ever, not all EU member states have in place rules dealing with these issues as

regards to third states. In order to lessen the impact of Brexit in this sensitive area

of law, the implementation of the Model Law in order to deal with extra-EU cross-

border insolvency could be of avail. Copyright © 2017 INSOL International and

John Wiley & Sons, Ltd.

I. Introduction

The outcome of the referendum held in the UK in June 2016 has opened

Pandora’s Box, making ‘uncertainty’the key word for many years to come. For

the time being, the number of question marks arising out of the current political

scenario clearly outnumbers the answers, in particular on the issue of which legal

position the UK will have after leaving its status as a member state of the European

Union. This article cannot obviously deal with all these issues, and thus, it only

*E-mail: laura.carballo@usc.es

This article has been financed by the Spanish Govern-

ment under the projectDER2016-80568-R and Xunta

de Galicia-FEDER that financed a research stay at the

Centre of Private International Law, University of

Aberdeen. Many thanks to the latter for its generous

support. Special thanks are to be given to Professors

Paul R. Beaumont and Gerard McCormack, as well

as to the two anonymous reviewers for their comments

on this article. The usual disclaimer applies.

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 270–294 (2017)

Published online 8 September 2017 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1283

focuses on international insolvency, the current instruments in place to deal with it

and (some) consequences of the UK’s withdrawal from the EU. In the light of coop-

eration being essential to modern international insolvency, the bottom line is whether

this principle can mitigate the fact that the UK is leaving the reign of mutual trust.

As in many other areas, Brexit in international insolvency matters means leaving

a highway and opting for side roads. Following the failed 1995 Brussels

Convention,

1

Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency

proceedings,

2

the well-known European Insolvency Regulation (‘EIR’), has provided

for the highway by which many insolvencies have been solved in an efficient and

effective manner within the EU area of justice. In doing so, the EIR has also pro-

vided British insolvency law a showroom by which many companies in Europe have

learnt how effective it is in restructuring businesses. In this vein, many legal and

natural persons have gone to the UK to take advantage of their toolkit of (pre-)

insolvency proceedings such as the voluntary bankruptcy procedure or the

prepackaged insolvency,

3

including the famous schemes of arrangements.

4

This trend has coincided with the active engagement of the European

Commission in changing the socioeconomic approach to insolvency, from a stigma

to a second chance as reflected in the 2014 European Recommendation on a new

approach to business failure and insolvency

5

and, more recently, by the Proposal

for a Directive of the European Parliament and of the Council on preventive

restructuring frameworks, second chance and measures to increase the efficiency

of restructuring, insolvency and discharge procedures and amending Directive

2012/30/EU.

6

While the shift towards rescuing businesses and individuals by

insolvency-related schemes is a global one, there is little doubt about the influence

of UK legislation and practice on the EU approach.

7

Most notably, these and

other developments in insolvency practice have triggered the issuance of

Regulation (EU) 2015/848 of the European Parliament and the Council of 20

May 2015 on insolvency proceedings (‘Recast EIR’).

8

The following pages consist of a brief account of the highlights of the insolvency

regulations that will not be kept once Brexit is effective and some suggestions as to

1. The Brussels Convention on Insolvency Proceedings of 23 No-

vember 1995 was the final outcome of a long drafting process ini-

tiated in the sixties, having been preceded by two projects of 1979

and of 1980 respectively. See Gerhard Kegel and Jürgen Thieme

(eds), Vorschläge und Gutachten zum Entwurf eines EG-

Konkursübereinkommens (Mohr Siebeck, 1988). The Report

on the Convention on Insolvency Proceedings by Miguel Virgós

and Etienne Schmit (1996) (‘Virgós-Schmit Report’)

was written as an explanation to the Convention, but

the latter did not come into force as a result of the

UK’s refusal to sign it up seeking to lift the European

Communities’embargo on English meat issued on

grounds of the mad cow disease. Taking advantage of

the then Article 65, now 81, of the Treaty of Function-

ing of the European Union, OJ [2012] C 326/1

(‘TFEU’), the convention was turned into a regulation.

See Manfred Balz, ‘Das neue Europäische

Insolvenzübereinkommen’(1996) ZIP 948–955.

2. OJ [2000] L 160/1.

3. See Elena Moya, ‘London risks becoming “Brothel”for Bank-

ruptcy Tourists’(The Guardian, 31 January 2010). For a

criticism, see Adrian Walters and Anton Smith, ‘Bank-

ruptcy Tourism’under the EC Regulation on Insol-

vency Proceedings: A view from England and Wales’

(2010) 19 International Insolvency Review 181–208; Paul

Omar, ‘The Inevitability of Insolvency Tourism’

(2015) 62 Netherlands International Law Review 429–444.

4. Whether British schemes of arrangement are insolvency pro-

ceedings (or not) will be discussed in the succeeding texts in section

VII of this article.

5. Brussels, 12 March 2014 [C(2014) 1500 final].

6. Strasbourg, 22 November 2016 [COM(2016) 723 final].

7. See with this reminder Steve Parker and Nick Hood, ‘Brexit:

Good News for Cross-border Insolvency or a Disaster?’(October

2016) Corporate Rescue and Insolvency 176–177.

8. OJ [2015] L 141/19.

Brexit and International Insolvency 271

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 270–294 (2017)

DOI: 10.1002/iir